What does a golden parachute typically involve?

A golden parachute typically involves higher severance packages for key employees in the event of a merger or acquisition. This financial arrangement ensures that top executives receive a substantial payout if they lose their job due to the takeover, providing them with a safety net. The intention is to attract and retain talented management by offering this financial protection, which can help reduce resistance to changes that come with corporate takeovers.

In contrast, options like underpaying management during a takeover or immediately acquiring shareholders' shares do not align with the concept of a golden parachute. Moreover, while increased job security might be a consideration for some employees post-takeover, it does not specifically represent the financial benefit characterized by golden parachutes. These parachute arrangements often aim to relieve the executives' concerns about job loss while also providing them with a substantial financial cushion in turbulent corporate environments.